Does Globalisation Shape Income Inequality

Does Globalisation Shape Income Inequality?
Empirical Evidence from Selected

Developing Countries
Author(s): Mirajul Haq, Iftikhar Badshah and Iftikhar Ahmad
Source: The Pakistan Development Review , 2016, Papers and Proceedings: The 32nd
Conference of the Pakistan Society of Development Economists, December 13 - 15, 2016,
Islamabad (2016), pp. 251-270
Published by: Pakistan Institute of Development Economics, Islamabad
Stable URL: https://www.jstor.org/stable/44986487
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Papers and Proceedings
pp. 251-270
Does Globalisation Shape Income Inequality?

Empirical Evidence from Selected
Developing Countries
MlRAJUL HAP, IFTIKHAR BADSHAH, and IFTIKHAR AHMAD
As economies of the world are getting more and more interdependent, hence, a large
segment of economic literature investigated the impact of globalisation on income inequality.
However, the empirical investigations on the impacts of globalisation on income distribution
are still inconclusive. Keeping in view the inconclusiveness, in this study we investigated the
relationship between globalisation and income inequality using five different proxies of
globalisation. The empirical analysis estimates five empirical models by using a panel data
approach for a set of 44 developing countries spanning from 1980-2014. Considering the
nature of data set, the empirical estimation has been carried out through GMM estimation
technique. The findings of the study reveal that overall globalisation cannot explain income
inequality; however, we found insights for the positive relationship between economic
globalisation and income inequality in the sample countries. In addition, the findings of the
study also indicate that average, and effective tariff rates explain negatively income inequality
in the sample countries. Based on study findings, it is safely concluded that economic
globalisation and income inequality move parallel in the sample countries.
JEL Classification: F01, 015, F13, C23

Keywords : Globalisation, Income Inequality, Tariff Rates, Panel Data
1. INTRODUCTION
1980s was the favourable era for trade liberalisation, as most of the dev
countries replaced its restrictive and import substitution policies with export
and import liberalisation policies. The primary objective of the developing co
to integrate with developed countries in order to enhance the pace of econom
through technological diffusion. As a result, in the last decade of the 20th cen
trade flows is significantly increased, and the diffusion of technology is rap
across the globe. However, with the advent of World Trade Organisati
globalisation and its impacts on income distribution got space as a heated issu
economists and policy-makers. Despite the fact that, the distributional
globalisation is one of the appealing research subjects, though empirical literat
away from consensus.
Mirajul Haq <haqmirajeco@gmail.com> is Assistant Professor, International Institute

Economics, International Islamic University, Islamabad. Iftikhar Badshah <iftikhar.badshah@
MPhil scholar at International Institute of Islamic Economics, International Islamic Universi
Iftikhar Ahmad <iftikhar@pide.org.pk> is Assistant Professor, Pakistan Institute of Developme
Islamabad.

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252 Haq, Badshah, and Ahmad
For instance, some studies have an optimistic view

reducing income inequality in both developed and develop
[DeadrofF and Stern (1994); Sylwester (2005); Ciaessens an
argued that the integration of developing economies with
developing countries, which increases economic grow
distribution of income in the developing countries. Th
conclusion that, in the presence of sound financial instit
liberalisation of capital account provides accessibility o
resources. Accessibility to finance enhancing their capaci
accumulation, hence income gap between skill and uns
other studies, for instance Boltho (1975) argue that
governess Japan and South Korea have achieved higher gr
trade policies without negative impact on the distri
recipients.
Some empirical studies came with pessimistic view, that globalisation always
widening income gap. These studies also justified their claim in trade inflow, and argued
that globalisation integrates developing countries with developed countries as result in
developing countries flow of capital goods, machinery, and technology increases.
However, as, most of the developing countries have relatively scarcity of skilled labours,
as a result demand for skilled labours increase that intern widen the wage gap increases
between skilled and unskilled workers [Basu and Guariglia (2007); Celik and Basdas
(2010)]. Considering the negative impact of globalisation on distribution of income in
developing countries, Lundberg and Squire (2003) emphasised on those trade
liberalisation policies, which creates an employment opportunity for the low-income
class to mitigate the wage gap between skilled and unskilled labours in the developing
countries. Keeping in view this inconclusiveness, in this study we investigated the
relationship between globalisation and income inequality using five different proxies of
globalisation.
In past a number of studies have been carried out on the distributional impact of
globalisation. However, most of the existing studies analysed the impact of overall
globalisation, or economic globalisation. However, we believe that the distributional
impact of globalisation deserves further investigation. Hence, unlike previous studies in
this study we investigated the distributional impact of globalisation more rigorously using
five different proxies of globalisation. 1 In this association an empirically analysis have
been carried out in case of 44 developing countries with time span from 1980-2014.
The remaining of the study is organised as follows. Section 2 presents some
relevant literature on the topic. Section 3 consists of methodology including empirical
model, data, and data sources, sample, and estimation technique. Section 4 comprises
empirical analyses along with robustness check. The study concludes with Section 5.
2. LITERATURE REVIEW
As this study is exploring the relationship between globalisation

inequality, hence this section of the study is devoted to review the existing l
Tive proxies of globalisation have been used; Overall Globalisation, Economic Globalis
GDP Ratio, Average T ariff Rate, and Effective Tariff Rate.

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Does Globalisation Shape Income Inequality? 253
have linked globalisation with income inequality. Studies on the link be

globalisation and income inequality broadly fall into three groups. First, stud
argued for the negative effect of globalisation on income distribution. For instan
their standard trade model Stolper and Samuelson (1941) showed that wage gap m
reduce due to trade openness between skilled and unskilled workers in the develo
countries. The predication of this standard trade model is empirically verified by
recent studies, for instance, Reuveny and Li (2003); Grossman and Rossi-Han
(2008) among others.
The earlier work of Stolper and Samuelson (1941); Rybczinsky (1955);
Mundell (1957), hold the claim that trade openness prove beneficial for inc
distribution in developing countries; as developing countries have relatively abun
unskilled labour, therefore its exports mostly embodied with labour inten
commodities that in turn increase wages of unskilled labour.
With trade liberalisation policies, country can harvest the potential gai
resource endowments. Such strategies may enhance pace of economic growth that i
decline the dispersion of unequal income distribution in the developing coun
According to the findings of Dollar and Kraay (2001a) in 1990s the average per ca
income of the liberalised developing countries increased by 5.0 percent, dev
countries by 2.2 percent, and developing countries that have not liberalised
increased by 1.4 percent. Similarly, in country specific study Wei and Wu (2001)
that, most of the Chinese cities participated in the liberalisation process in
therefore economy become more integrated with the rest of world, as a result, i
inequality gap reduced significantly between rural-urban regions.
Besides, several studies Borjas and Ramey, (1994); Francois and Nelson (1
found that with expansion of trade, wage inequality declined in the US econ
Whereas, number of studies found a significant and positive relationship be
openness and income inequality in the developing countries such as Sachs an
(1996); Barro (2000); Lundberg and Squire (2003). These studies explained their
in the growth and employment impact of globalisation, and argued that t
liberalisation in developing countries enhanced pace of economic growth and
created employment opportunities. However, they hypothesised that, as the bene
economic growth are not equally distributed, hence poor segment of population c
get the potential benefit of globalisation, as a result income gap between skil
unskilled labours has increased. The empirical findings of Christiaensen, et al. (20
World Bank (2006) concluded that, economic growth is further skewed due to ope
whereas, its benefits has not been equally distributed within Sub-Saharan A
countries.
Rising regional inequality within a nation is a serious concern to quantify li
standards among different regions in the world. Some empirical studies sho
significant positive relationship between trade openness and regional income ineq
For instance, in country specific study Daumal (2013) found that, trade openness
positive impact on regional income inequality among the Indian states, whereas, r
regional inequality in case of Brazil. In addition, he found that FDI inflows r
regional income inequalities in both Indian and Brazilian economies. Explaini
findings, he argued that as India started trade liberalisation policies in mid 1980s

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in the post-liberalisation period (1991-2005), regional

correlation coefficient is equal to 0.96. On the other h
openness reduced regional inequality in the same period,
equal to -0.75. Kanbur and Zhang (1999) of rising regio
from 0.19 to 0.26 in the post liberalization period of 1985
similar results. Supplement Kanbur and Zhang (1999) find
argued that, income inequality is worsens in the cros
economies in case of China. In similar line, Zhang and Zh
liberalization improves regional income inequality in China
Furthermore, several studies found that, with glo
skilled labour is growing faster than the premium of un
countries. For example, Robbins (1996) estimated the effe
wages premium in Colombia with the time span from
conclusion that wage dispersion has increased in liberalise
one. In addition, Robbins and Gindling (1999) found same
Green, et al. (2001) examined that, on average, openness ha
skilled qualified workers. Whereas, the opposite results o
non-educated workers in case of Brazil. Similarly, Beyer, e
positive relationship between trade liberalisation and wage
in Chile within the time span of 1960-1996.
A reasonable number of empirical studies have inv
between globalisation and income distribution in case
instance, Spilimbergo, et al. (1999) argued for a positi
openness and income inequality in skill-abundant dev
several other studies assert a significant positive relations
and inequality in the developed countries [Borjas, et
(1992); Karoly and Klerman (1994); Pritchett (1997); Be
and Leichenko (2004)]. Atkinson (2003) in his empirica
globalisation income inequalities has increased in the OEC
and Gaston (2008) explored the relationship between glob
using industrial wage inequality and household income in
of openness of the time span 1970-2000, they concluded th
in the OECD countries.
The empirical literature on the subject depicts a non-linear relationship between

globalisation and income distribution, for instance, in country specific study Jalil (2012)
find that in case of China, at the start income inequality increases with the expense of
openness, however, it falls after a certain level of openness. Similarly, using data set of
18 Latin American countries, Dodson and Ramlogan (2009) argued for the inverted U-
Shaped relationship between trade openness and income inequality. Based on the study
findings, they concluded that along with liberalisation policies governments also have to
prompt the re-distribution policies, hence to mitigate the negative effects of trade
liberalisation on income distribution.
Some of the empirical evidence predicts a differential impact of trade openness on

wage inequality. For instance, Wood (1997) examined that wage inequality is reduced
from 1970s to 1980s in the East Asian economies, because of trade liberalisation, which

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reduces the wage gap between skilled and unskilled workers. Whereas, in case of
American economies wage inequality is increased in 1990s. In addition, some
found an inconclusive relationship between globalisation and income inequalit
example, Hennighausen (2014) examined the relationship between trade openn
capital movements with income inequality in OECD countries. The study fou
evidences of the correlation between openness and capital mobility. Similarly, Do
Kraay (2001b) came with the conclusion that globalisation have no impact on the
shares of the poorest quintiles in a cross-sectional studies. Similarly, Higg
Williamson (1999), Bowles (2001), and Edwards (1997) used more sophist
estimation techniques and came with the conclusion that trade openness cannot e
income inequality.
3. EMPIRICAL ANALYSES
Our objective is to analyse the income distributional effect of globalisat

meet the objective, we work with panel data set of 44 developing countri
from 1980-2014. We start our estimation with the following base-line model.
INCIit = ß0 + ßiGBit -I- ß2Xit + [ii + vt + sit ... ... ... (1)
Income inequality INCIit is our dependent variable; Globalisation ( GBu ) is

variable of interest that further classified in five different variables namely, over
globalisation, economic globalisation, trade openness, average tariff rate, and effect
tariff rate: Xu is the vector of control variables namely, per capita real GDP, depend
ratio, human capital, inflation rate and government size. Whereas fit and vt de
unobserved cross-sectional and time specific effects respectively, t is the error term.
3.2. Definition and Construction of Variables under Consideration
The dependent variable is income inequality, a number of methods have been

developed to measure income inequality. The one well standard measure of income
inequality is GINI Coefficient developed by Corrado Gini (1912). The value of GINI
coefficient lies between zero and one, value closer to zero indicates equal
distribution, whereas, value closer to one indicates an unequal distribution of income.
Most of the empirical literature captured income inequality with GINI coefficient and
used the Luxembourg Income Study (LIS) data base of GINI coefficient. However,
this data set has two major limitations. First, the dataset is just developed for thirty
richest economies of the world; second, the data set have a short time span that just
start from 1990.
In this study, we used a SWIID income inequality data set, which has created by
Solt (2014). This data set have some advantage over LIS data set. First, the data set is
developed for a large number of countries. Second, the data set have a long time span,
last but not the least, the data set is the comparison of different components of inequality,
hence it is very easy to check the robustness of three different inequality approaches
(consumption, income and gross income).
Among explanatory variables, the variable of interest is globalisation, which
defines as, "the integration of regional and national economies across the boarders
through economic, political, social, and cultural changes, and with the exchange of

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goods, services and capital with rest of the world econom

globalisation is the sub-index of economic, social, and political
Whereas, the index of economic globalisation exhibits the
the national economy with rest of the world through the way
technological spill over and exchange of goods and servic
globalisation index is taken from the KOF index of globalisati
are average tariff rate ( ATRit ) and effective tariff rate ( ET
prominent policy variables to measure the degree of openness.
using to represent the inflow of imported goods. The received
Dobson and Ramlogan (2009) shows that, ATRit is relatively be
then TOPENjt, because, the trade ratio is highly correlat
technological innovation and macroeconomic fluctuations, data
taken from World Development Indicators (World Bank).4
Effective Tariff Rate ( ETRit ) is the ratio of tariff revenue
and Zhang (2005)], which measures complete pattern of product
addition, it measures the overall effect of tariffs on value added
industry, when both intermediate and final goods are imported
we choose a set of control variables, keeping in view its im
distribution determinant, and its potential in the affecting of i
of globalisation. In control variables, we have economic growth
and across countries. A number of studies have investigated a
relationship between economic growth and income inequali
benefits of an increase in economic growth cannot receive by
population. In most of the developing economies, economic gr
gap between rich and poor peoples [Bourguignon (1981); L
(2000)]. Furthermore, several studies explored a negative relat
GDP and income inequality [Persson and Tabellini (1994);
(2008)]. In this study, we use growth per capita real GDP inste
real GDP, as it is highly correlated with inflation and fin
(2010)]. The data is taken from World Development Indicator (
Our next explanatory variable is dependency ratio, which
population age is younger than 15 years and its age is above 65
than 15 and above 65 is taken as a percentage of working age
ratio also varies both overtime, and across countries. The d
Development Indicator (WDI), of the World Bank. Inflati
persistence and continued increase in the general price level o
literature Cutler and Katz (1992), and Clarke, et al. (2006) sign
of inflation rate on income inequality, and argued that higher
wages as a result employment opportunity is created, which af
used GDP deflator as a proxy of inflation, the data is taken f
Bank.
2The detailed list of all variable is provided by Dreher, et al. (2008).

Available at http://globalization.kof.ethz.ch/query/
4http://econ. worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEA
044- pagePK: 642 1 4825 -piPK: 642 1 4943 -theS itePK : 4693 82, 00. html

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Human capital means level of education, job, and fitness expression of workers
[Salvatore (2011) p. 141]. Broadly, human capital comprises into four ingredients that
embodied in human namely skill, experience, education, and intelligence. In this stud
we used secondary school gross enrolment as a proxy of human capital. The variable s
of government represents an actual state of an economy. The government size may aff
income inequality with the allocation of public goods, interference in the market pla
and redistributive expenditures [Dreher, et al (2008)]. The renewed literature Ru
(2004), Lim and McNelis (2014) signifies the positive impact of government spending
income inequality. In this study, we use government final consumption expenditure
proxy of government size.
3.3. Data and Data Sources
To examine the impact of globalisation on income inequality, we used dataset o

forty four developing countries spanning from 1980-2014.5 The data is collected fro
secondary sources, that average tariff rate and effective tariff rate are taken from W
Development Indicator (WDI), of the World Bank. The data for economic globalisatio
and overall globalisation are taken from KOF index of globalisation,6 and the G
coefficient (income inequality) is from Standardised World Income Inequality Databa
(SWIID), which is developed by Solt (2014).
3.4. Estimation Technique

As our data set is panel in nature, hence in the first stage empirical mode
estimated with pooled OLS. However, the results of pooled OLS is inefficient as the
hypothesis of Breusch-Pagan (1979) test 5U2 = 0 cannot accepted for all specification
indicates that intercept values are not remain the same across cross section;7 w
directed us for Random Effect. Next, we applied the Hausman (1978) test to ma
choice between Random and Fixed effects. The null hypothesis of Hausman t
H0'" fixed effects are not efficient estimates ". In all cases, the null hypothesis of Hau
test is rejected, which indicate for fixed effects.8 Next, we have used Redundant Fi
Effects test to make a choice among cross section, time effect and both cross section
time effects. In all three cases the null hypothesis H0: " There is no fixed effect" is rej
for all our specifications, which indicate the existence of fixed effect.9 The last bu
the least, we applied the Serial Correlation (LM)Test, as, the null hypothesis H0 : " n
serial correlation "10 is rejected in all specifications. Keeping in view the result
safely concluded that our model is dynamic in nature; hence, we used the Generalis
Method of Moments (GMM) developed by Arellano and Bond (1991) to estimate
dynamic model of panel data.
5In Appendix D Table 1 presents the complete list of developing countries.

Available athttp://globalization.kof.ethz.ch/query/
The results of Bruesch-Pagan specification test are presented m Appendix C Table 1.
8The results of Hausman specification test is presented in Appendix "C' Table 2.
9The results of Redundant Fixed Effects tests are presented in Appendix "C" Tables 3, 4 and 5, w
direct us for the existence of fixed effects.
In Appendix "C" Table 6 has the results of LM test, which direct us the existence of serial correlat

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In dynamic panel data models, GMM have some advantages

First, GMM allows estimation under those restrictions, which a
theory, hence supplementary assumption are not required. Seco
maintains serial correlation, GMM taking into account the seria
provides efficient estimations even with additional moment c
estimators control the unobserved effects through differencing
4. EMPIRICAL FINDINGS AND INTERPRETATION
The empirical findings have been carried out through GMM techniques
five different proxies of globalisation. The GMM estimator is providing con
significant results in case of dynamic model. As presented earlier that, w
specifications which contains different proxies of globalisation. In specificat
variable of interest is overall globalisation ( OGit ) enters the model with ne
which is not statistically significant. This may be due to the reason t
globalisation is the composite index of three sub-indices economic, social and
globalisations. Among these, social and political globalisations have less
income inequality. Our findings are in line with the findings of Bergh and N
that came up with the conclusion that political and social globalisations cann
income distribution in the developing countries.
In model (2), the overall globalisation is replaced with economic glo
( EG¡ ,), which enters the model with positive sign that is statistically signi
percent. The result indicates that economic globalisation worsen the unequal
of income in the selected developing countries. There are two possible ju
First, as developing countries enhance its trade ties with developed one
imports of capital goods (machinery, and new technology) increases, that inte
demand for skill labour increased. However, as developing countries have ab
unskilled labours, hence large segment of labour force cannot harvest the b
result are in line with some of the existing studies [Gopinath and Chen (20030
(2006); Basu and Guariglia (2007); Celik and Basdas (2010)]. Second,
developing countries mostly facilitated the capitalist and richest segment of
hence a large segment of population cannot harvest the potential gain of FD
is in line with the findings of IMF (2007), which lend support to the cla
increase income inequality as it support richest class of the developing coun
result is also supported by the findings of Zhang and Zhang (2003) and Jaum
(2013) argued that, capital inflow into developing countries increase wage ga
skilled and unskilled workers, as, developed countries mostly invested FDI a
sectors in the developing countries. 11
In specification 3 (column 4) trade openness TOPENit hold positive s
signifying a positive impact of trade openness on income inequality. This resu
with previous empirical findings of Marjit, et al. (2004), and Asteriou, et al.
MFor instance, several empirical studies [Kanbur and Zhang (1999); Zhang and Kanbur (
that, economy of China is liberalised in the decade of 1980s and become the second largest re
whereas, income inequality is worsens since from the last three decades. In this connection, Kra
(2016) argued that, globalisation provide more potential benefits to the rich class instead of lowe
developing countries.

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following are some possible justification of the result. Liberalisation of trade pro
opportunity to domestic manufacturing in international market, hence to m
requirements of international market demand manufacturing sector of dev
countries adopt international quality standard in the manufacturing process
increase demand for skilled labour and therefore increases wages of skilled labour.1
In specifications 4 (column 5), and 5 (column 6) the variable of int
globalisation is captured with average tariff rate ATRit, and effective rate
respectively. Both variables enter the models with negative signs (-0.046) and (-0.
respectively that are statistically significant. The results indicate that, an increase
tariff rates decline income inequality in the developing countries. The one
justification is that, an increase in the tariff rates decline integration of dev
countries with rest of the world. The result supplements our previous findin
economic globalisation and trade openness expand income inequality in deve
countries.
Moreover, when we compare the magnitude of estimated coefficients of TO

and ATRjt, the coefficient value of TOPENit is lower than ATRit. This result are
with some of the existing studies Edwards(1997); Higgins and Williamson (
Ravallion (2001); Zhou, et al (201 1) explained that, as TOPENit is highly correlate
skill premium between skilled and unskilled workers, hence not properly explain i
inequality.
Almost our control variables appear in the base line specifications with expected
signs. For instance, growth of GDP per capita (PCGDPit) holds positive sign and is
statistically significant, denoting it's worsen impact on income inequality. This may be
due to the fact that a large segment of population cannot harvest the benefits of economic
growth in developing countries. Theresults are in line with previous findings of [Kaldor
(1956); Bourguignon (1981); Li and Zou (1998); Forbes (2000)].13
The sign of our subsequent variable dependency ratio (ADRit) is positive, which is
significant at one percent level in most of the specifications, indicates that dependency
ratio explain income inequality positively. As the number of dependents in a household
increases, this will increase income gap between employed and unemployed workers in
the developing countries. Our findings are in line with the empirical findings of Dreher,
et al (2008) and Bergh and Nilsson (2010). Similarly, inflation holds positive sign that is
significant at one percent level in most of the specifications. Similar findings have been
carried out by [Cutler and Katz (1992); Clarke, et al (2006)], which show that, higher
inflation negatively affect the distribution of income in the developing countries. The
monetary instability has an adverse effect on income distribution, as higher inflation
reduces real wages that creates an employment opportunity.
Human capital (SSEGit) on the other hand carries a negative coefficient which is
significant at one percent level indicating their positive impact on income inequality. Our
findings are in line with the empirical findings of Borensztein, et al (1998); Ciaessens
and Perotti (2007) that found a negative relationship between investment in human
12In similar lines, Zhu and Trefler (2005) found that, most of the Latin American countries adopted
export-led strategy in the decade of 1980s, hence, export level and wage inequality move in the same direction.
,3In addition, Jalil (2012) argue that emerging economy of China achieve higher economic growth in
the South Asian region, whereas, income inequality is increased with same proportion as with the increase in
economic growth.

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capital and income inequality. They argued that poor peopl

financial resources due to capital account liberalisation, th
capacity to invest in human capital accumulation. Gourdon, et
conclusion that, economic globalisation declines income inequa
which has at least primary educated labour force.
Similarly, Gregorio and Lee (2002) and Atif, et al. (201
education expenditure is a prominent policy variable that
finding of Wood (1997) and Bensidoun, et al. (2011) indicat
possess more educated labour force, take more benefits from
most important is the reduction of income inequality. Ou
signifying the impact of governments size (EXPit) on income i
countries. The following are some possible justifications of th
by World Bank (2006); Banerjee and Somanathan (2007); Kh
that in developing countries large portion of public exp
infrastructure, and telecom sector, which enhances the overall
however have worsened the income distribution. Second, the re
with rent seeking environment of developing countries as in
Wong (2016).
To test the consistency of the estimators we apply three di
Shapiro-Wilk (1965) test of normality, which null hypoth
distributed ". Results of Shapiro-Wilk test presented in T
specifications the W statistics is positive and is closer to
normally distributed. The second, test examines whether the e
model (Equation 1) is serially correlated or not. Results presen
that the P-value is greater than 0.05 in all specifications, hen
serial correlation " is not rejected, which support the dynamic
to check the validity of instrumental variables we used the S
Sargan test is greater than 0.05 in all specification, hence,
identifying restrictions are valid ' is not rejected, which
instrumental variables.
5. CONCLUSION
Rising income inequality in the developing countries through the integ

world economies is a controversial issue since 1980s. However; empirical
the impact of globalisation on income inequality is still inconclusive. Keeping
inconclusiveness, in this study we revisit the basic question that "Does
shape income inequality in developing countries". In this association, w
different proxies of globalisation using data set of 44 developing countries f
1980-2014.
Our empirical findings reveal that overall globalisation is not associated with
income inequality; however, economic globalisation has worsened impact on income
inequality. In addition, our estimates indicate that, average and effective tariff rates
improve income distribution in the sample countries. Thus our results provides evidences
to the worsen impact of economic globalisation on income inequality in the selected
developing countries.

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Does Globalisation Shape Income Inequality? 26 1
Table 4.1
Empirical Findings (Dependent Variable is Income Inequality)

Variables
PCGDPjt
(2.55)** (2.59)** (8.14)*** (3.00)*** (3.20)***

ADRu .020 .028 .021 .071 .037
(3.12)*** (3.90)*** (1.31) (1.55) (2.56)**
INFit .010 .011 .011 .011 .071
(11.79)*** (12.40)*** (8.64)*** (2.44)** (9.96)***
SSEGit -.003 -.009 -.018 .011 -.036
(-1.86)* (-4.20)*** (-4.83)*** (1.51) (-5.17)***
EXPit -.026 -.018 .037 .073 -.012
(-1.21) (-0.75) (1.45) (1.78)* (-0.96)
OGi, -.007 -
(-1.61)
EG* - .012
(4.06)***
TOPENit - - .004
(2.94)***
MR* - -.046
(-2.34)**
ETRit - - - -.062
(-11.18)***
Lag Dep .892 0.89 .741 .491 .841
(28.70)*** (25.09)*** (16.83)*** (9.52)*** (42.84)***
Noof Obs 490 490 583 204 170
Number of 41 41 71 63 32
Instruments
Shapiro Wilk Test 0.99 0.99 0.90 0.64 0.96
Serial 0.09 0.07 0.90 0.21 0.07
Correlation
SarganTest 29.23 24.85 25.01 17.60 24.33
P-Value
Note: ***,
statistics
inequality
Wilk and
APPENDIX A
Table Al
Descriptive Statistics of Variables under Consideration

Variables Obs
INCIit 1167 44.30 6.35 27.32 63.51

PCGDPjt 1435 7.32 1.05 4.95 9.62
ADR« 1496 73.50 16.77 36.04 112.77
INFit 1448 16.64 27.7 -27.05 265.20
HQt 1055 54.973 25.37 5.12 109.62
GSIZit 1422 12.935 4.34 2.05 31.82
OGi, 1434 45.81 12.16 15.86 79.31
EGi, 1434 45.63 15.17 9.75 85.15
TOPENi, 1403 63.41 33.95 13.18 199.36
ATRit 745 15.68 12.99 1.4 106.5
ETRj,

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APPENDIX B
Table B1
Pooled OLS Estimation Results
Variables Model 1 Model 2 Model 3 Model 4 Model 5
PCGDPj, 1.87*** 1.57*** 2.06*** 2.17*** 2.06***

(5.85) (5.12) (4.73) (6.25) (4.73)
ADRit .090 *** .087*** .063** .136*** .063**

(5.06) (5.06) (2.50) (5.66) (2.50)
INF¡, .026 *** .029*** .055** .025*** .055**

(3.14) (3.51) (2.02) (2.67) (2.02)
SSEGit -.013 -.014 -.015*** -.004 -.015
(-1.34) (-1.52) (-1.17) (-0.33) (-1.17)
EXPi, .289*** .256*** .387*** .251*** .387***
(5.04) (4.47) (4.26) (3.11) (4.26)
OGit .062** -
(2.21)
EGit - .083*** -
(4.32)
TOPENit - - -.171**
(-2.61)
ATRit - -.059**
(-2.53)
ETRi, - -.171**
(-2.6
BP test 31.42 37.76 4.38 7.24 4.38
Prob 0.00 0.00 0.036 0.007 0.036
No of Obs 759 759 308 411 308
SE of Reg .027 .019 .065 .023 .065

Note: ***, **, *presents level of significance at 1 percent
statistics are in parenthesis. The dependent variable is in

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Table B2
Fixed Effects Estimation Results

PCGDPit 8.18*** 7.87*** 7.181** 5.54*** -5.25**

(11.56) (12.34) (2.04) (7.22) (-2.31)
ADRit .071*** .079*** .101 .055** .277***
(3.15) (3.86) (1 58) (2.10) (4.30)
INFj, .021*** .029*** .025** .011** -.009
(3.74) (3.56) (2.55) (2.18) (-0.47)
SSEGit -.015 -0.019 -0.025 -0.052** .007
(-1.01) (-1.41) (-0.39) (-2.39) (0.19)
EXPit .121** .119** .111 .204*** . 439 ***

(2.23) (2.21) (1.38) (3.25) (2.82)
OGit -.092*** -
(-2.86)
EGit - -0.089*** -
(-3.59)
TOPEN« - - -.017
(-0.88)
ATRit - -O.026*
(-1.87)
ETR¡, - -0.187***
(-2.63
BP test 31.42 37.76 23.40 7.24 4.38
P-values 0.00 0.00 0.00 0.007 0.03
No of Obs 759 759 759 411 178
SE of Reg 0.032 0.022 0.019 0.014 0.071

HausmanTest 33.33 35.06 46.06 12.81 21.07
P-values 0.00 0.00 0.00 0.04 0.001
Note: ***, ♦*, *presents level of significance at 1

statistics are in parenthesis. The dependent varia

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Table B3
Random Effects Estimation Results

PCGDPit 5.92*** 6.02*** 5.33*** 4.03*** 3.64***

(10.04) (n-01> (9-74) (6-43) (42°)
ADRj, .084*** .079*** .098*** .063** .183***
(3.80) (3.98) (5.16) (251) (4.44)
rNFit .019*** .018*** .023*** .011** .016
(3.54) (3.33) (4.25) (2 og) (0 g6)
SSEGj, -.004 -.003 -.003 -.035* .045***
(-0.28) (-0.23) (-0.26) (-1.80) (3 03)
EXPit .092* .096* .099* .188*** .093
(1.71) (1.80) (1.88) (3 03) (1.04)
OGit -.042 -
(-1.39)
EGit - -.059*** -
(-2.75)
TOPENi, - - -.007
(-0.82)
ATRit - -.035***
(-2.6)
ETRit - -.052
(-0.9
BP test 31.42 37.76 23.40 7.24 4.38
P-values 0.00 0.00 0.00 0.007 0.03
No of Obs 759 759 759 411 308
SE of Reg .031 .022 .008 .013 .057
HausmanTest 33.33 35.06 46.06 12.81 21.07
P-values 0.00 0.00 0.00 0.04 0.001
Note: ***, **, *presents level of significance a

statistics are in parenthesis. The dependent v

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APPENDIX C: SPECIFICATION TESTS RESULTS
Table CI
Bruesch and Pagan Test Results

H0: Constant Variance
Probability 0.00
Table C2
Hausman Test Results
Null Hypothesis: Fixed-Effects are not effective estimates
Chai2
P-Values
Table C3
Redundant Cross-Sectional Fixed Effects Test

Null Hypothesis: No Fixed Effects
F-Values 16.07 15.87 16.09 11.53 7.47

P- Values 0.000
Table C4
Redundant Period Fixed Effects Test

Null Hypothesis: No Fixed Effects
F-Values 22.75 18.70 21.89 15.23 5.37
P-Values
Table C5
Redundant Cross Sectional and Period Fixed Effects Test

Null Hypothesis : No Fixed Effects
F-Values 17.92 16.31 19.87 12.32 6.66

P-Values
Table C6
Serial Correlation (LM) Test

HO: No First Order Autocorrelation
Model 1 Model 2 Model 3 Model 4 Model 5
"F 179.244 180.653 159.087 107.528 97.718
P-values 0.000 0.000 0.000 0.000 0.000

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APPENDIX: D
Table D1
List of Sampling Countries

Argentina Bangladesh Barbados Bolivia
Botswana Brazil Cameroon Chile
China Colombia Costa Rica Ecuador
Egypt, Arab Rep El Salvador Fiji Ghana

Guatemala Guyana Haiti Honduras
India Indonesia Iran, Islamic Rep Jamaica
Kenya Malaysia Mali Mexico
Mozambique Pakistan Panama Paraguay
Peru Philippines Senegal Sierra Leone
Sri Lanka Thailand Turkey Uganda
Uruguay Venezuela, RB Zambia Zimbabwe
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